Varieties and the Transfer Problem: The Extensive Margin of Current Account Adjustment

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dc.contributor.author CORSETTI, Giancarlo
dc.contributor.author MARTIN, Philippe
dc.contributor.author PESENTI, Paolo
dc.date.accessioned 2008-01-24T10:57:14Z
dc.date.available 2008-01-24T10:57:14Z
dc.date.issued 2008
dc.identifier.issn 1028-3625
dc.identifier.uri http://hdl.handle.net/1814/7871
dc.description.abstract Most analyses of the macroeconomic adjustment required to correct global imbalances ignore net exports of new varieties of goods and services and do not account for firms'net entry in the product market. In this paper we revisit the macroeconomics of trade adjustment in the context of the classic 'transfer problem', using a model where the set of exportables, importables and nontraded goods is endogenous. We show that exchange rate movements associated with adjustment are dramatically lower when the above features are accounted for, relative to traditional macromodels. We also find that, for reasonable parameterizations, consumption and employment (hence welfare) are not highly sensitive to product differentiation, and change little regardless of whether adjustment occurs through movements in relative prices or quantities. This result warns against interpreting the size of real depreciation associated with trade rebalancing as an index of macroeconomic distress.
dc.language.iso en en
dc.relation.ispartofseries EUI RSCAS en
dc.relation.ispartofseries 2008/01 en
dc.relation.ispartofseries PIERRE WERNER CHAIR PROGRAMME ON MONETARY UNION en
dc.title Varieties and the Transfer Problem: The Extensive Margin of Current Account Adjustment en
dc.type Working Paper en
dc.neeo.contributor CORSETTI|Giancarlo|aut|EUI70002
dc.neeo.contributor MARTIN|Philippe|aut|
dc.neeo.contributor PESENTI|Paolo|aut|
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